Summary and context
U.S. Treasury Secretary Scott Bessent has publicly urged the Federal Reserve to increase the capacity of its Foreign and International Monetary Authorities (FIMA) repo facility, arguing that such an expansion would serve as an important backstop as Japan intervenes in currency markets to support the yen. The suggestion, offered in a social media post and expanded upon in television remarks, comes after a rare joint operation between the U.S. Treasury and Japan's Ministry of Finance to buy yen following a stretch in which the Japanese currency reached 40-year lows versus the U.S. dollar.
What Bessent proposed
In his social media post on X, Bessent described the FIMA repo as "an important backstop" and said Treasury would encourage it to be upsized in the coming months. When asked about the idea in a CNBC interview, he noted that when the FIMA facility was launched roughly six years ago, the size of the global bond market was smaller and said, "I think it would be reasonable for the Fed to consider upsizing the facility."
"The FIMA Repo Facility is an important backstop," Bessent wrote. "We would encourage it to be upsized in the coming months."
He also characterized the facility as a secure lending mechanism that operates similarly to existing swap lines. As he said in the interview, "I’m happy that the Japanese government wants to use it and draw on it, and it’s a completely secure lending facility. We have swap lines outstanding, so it’s really no different than a swap line - that the country posts collateral and we lend them the money to intervene, in this case."
How FIMA works and its current constraints
The Foreign and International Monetary Authorities repo facility allows foreign official institutions to borrow short-term dollars from the Fed in exchange for U.S. Treasuries as collateral. Currently, the mechanism enables access to up to $60 billion in short-term funds. Raising that cap would require approval by a majority of the Federal Open Market Committee, which includes the 12 regional Federal Reserve bank presidents and the Board of Governors.
The Fed has not publicly commented on whether it will entertain a change to the cap following Bessent’s request. The facility, created in 2020 and made permanent in 2021, was originally established against the backdrop of the COVID-19 pandemic to address potential strains in global dollar funding that might spill over into U.S. markets. Its public description emphasizes support for the smooth functioning of financial markets more broadly.
Usage of the facility has historically been limited. Aside from a brief uptick in March and April 2023 tied to turbulence around the sudden collapse of Silicon Valley Bank, FIMA has seen very little drawdown since it was launched.
Why upsizing could help Japan and the U.S. Treasury market
An increase in the available FIMA capacity could give Japan another route to fund yen purchases without needing to sell any portion of its roughly $1.14 trillion holdings of U.S. Treasuries. That would be notable at a time when U.S. long-term yields have been rising - the 30-year Treasury yield has reached its highest level since 2007, while the 10-year note yield is around levels last seen near the start of President Trump’s second term - elevating borrowing costs sensitive to those yields, such as mortgage rates.
Some market participants see a potential market benefit from a larger FIMA. Daleep Singh, chief global economist at PGIM, told clients that an expansion "would be a positive signal" for the Treasury market, while cautioning that any tweak to the facility functions more as a shock absorber than a fix for currency moves rooted in economic fundamentals. Singh's background includes roles at the New York Fed and the U.S. Treasury Department.
Critiques, market risks and signaling effects
Not all observers view an enlargement of FIMA as an unambiguously constructive step. Several analysts and economists highlighted two central concerns: first, that publicity around expanding the facility could be as much about signaling resolve as it is about providing concrete, incremental support; and second, that such signals might inadvertently invite market participants to probe whether the United States and Japan would actually follow through under sustained pressure.
As Derek Tang, an economist and co-founder of Monetary Policy Analytics, put it, some commentary suggests the appeal of the proposal may be largely posturing - a way to indicate that the U.S. has substantial "firepower" to back yen-supporting operations and to warn markets not to test that resolve.
Evercore ISI analysts flagged a distinct potential for market blowback, noting that while plans to employ FIMA could indicate greater scope for FX intervention, an emphasis on a capped Fed repo facility "could backfire by inviting markets to test the commitment of the U.S. and Japan to strengthen the yen if doing so requires large sales of U.S. Treasuries."
Implications for the Fed’s balance sheet objectives
Another consideration is how substantial use of FIMA might square with Federal Reserve aims to shrink its balance sheet. Large drawdowns would increase Fed holdings at least temporarily, a development that could run counter to ongoing efforts under new Fed leadership to reduce the central bank’s footprint in markets. The Fed’s policy decisions around its balance sheet will be made independently, and any change in FIMA’s size would interact with those broader objectives.
Procedure and uncertainty
Beyond the practical considerations, the path forward is procedurally uncertain. Increasing or removing the $60 billion cap would require a majority vote of the Federal Open Market Committee, and it is unclear whether the committee will reach consensus to do so. The Federal Reserve has so far declined to comment on whether it will respond to Bessent’s suggestion.
Conclusion
Bessent’s public call to the Fed to upsize the FIMA repo facility underscores the policy tools under discussion as authorities respond to rapid FX movements and coordinated interventions. While a larger facility could allow Japan to buy yen without liquidating sizeable Treasury holdings and potentially provide reassurance to markets, it also raises questions about signal effects, the risk of market testing, and the interaction with Fed balance sheet reduction aims. These trade-offs mean any change would be as much a policy decision about signaling and institutional priorities as an operational adjustment.
Note: The Treasury confirmed a rare joint operation with Japan’s Ministry of Finance to buy yen. The Federal Reserve has declined to comment on whether it will consider increasing the FIMA cap.